Description of the case
Among the most attention-grabbing dramas to come out of the Great Recession was the marriage of Fiat and Chrysler. Financed and brokered by the United States government in an unmatched market intervention, the amalgamation brought two outstanding companies together whose histories were strangely similar but whose prospects had recently diverged.
Chrysler is an American symbol one of Detroit has framed titanic three in the auto industry. Chrysler is a company with a turbulent history having experienced several cycles of booms and busts. The company fell on hard times and needed a government bailout in the year 1979. Chrysler managed to pay up the government loan and continued to be successful in the auto industry for a better part of the years.
This improvement in its activities was under the leadership of the legendary Lee Lacocca. In the mid 1990s, Chrysler was a strong and growing company, and this aspect led it to be an acquisition target by Daimler-Benz. This ownership lasted from 1998 to 2007 when Cerberus Capital Management took over the company. In another twist and turn of events, Chrysler declared bankruptcy in 2009 having recorded a 36%sales fall.
In addition, the company’s market share dropped to 8.4%! During this period, Chrysler received $4 billion of the $13.8 billion in emergency loans from the $700 billion Troubled Asset Relief Program (TARP). Chrysler filed for bankruptcy on April 30, 2009, and by May 31, its reorganization became official (Clark, 2012).
On the other hand, Fiat is just as iconic as Chrysler Company. The Turinese Company was in particular a central pillar of Italy’s “miracolo economico” producing small but stylish and smart cars like 500 and 600. These emerged as key symbols of the nation’s speedy recovery from the desolation of World War 2. Fiat equally has a tumultuous history with the most notable one being in the late 1970s amid traumatic labour strife.
Thanks to the aid from the Italian state and creation of stylish new models, the company recovered from its collapse. The company did well in the auto industry and then faced its other challenge in late 1990s. Fiat fell apart during this time and was on the threshold of bankruptcy in the early 2000s. At this point, Fiat took a different step in trying to recover from the bankruptcy, which makes it different from Chrysler.
The Economist in 2008 described the move as a remarkable industrial and financial changeover that will be pored over in business schools for the rest of the times. This turnaround step for Fiat was under the management and leadership of Italian-Canadian CEO, Sergio Marchionne (Liff, 2007).
On June 10, the Chrysler-Fiat alliance became official, and this meant that Fiat CEO Sergio Marchionne took over as CEO. With the acquisition being official Chrysler underwent a significant organizational change starting with the leadership area. There was a change of the CEO and the name of the company.
The company attained the name of Chrysler Group LLC. In addition, Chrysler Group LLC management team included a nine member Board of Directors. The agreement was for Fiat to appoint three of the directors, one director appointed by the Canadian authorities, four to be appointed by the US government, and the other one by the United Auto Workers’ Retiree Medical Benefits Trust.
Organizational change in the company also included restructuring to concentrate on the Jeep, Chrysler, Dodge vehicle lines and the Mopar brand of aftermarket parts. Recently, Fiat increased its stake in Chrysler to 25%, which was through achieving the first three government-required milestones- producing a fuel-efficient engine in the United States.
The CEO reportedly stated that he hopes to take Chrysler Group LLC public before year-end together with a raise in its stake to 35%. In the event, Fiat meets these financial and developmental goals it will own 51% of the company.
The minority holders of the company include the US and Canadian governments of 8% and 2% respectively. So far, Chrysler has acknowledged to getting $13.8 billion in total aid and pledged to repay its loans by 2014. By the end of 2011, the company is to pay back the first $2.1 billion (Sebastiani, 2011).
Many people saw little chances of success with the Chrysler-Fiat merger. However, since this takeover by Fiat Marchionne has managed to turn Fiat losses into healthy profits by reducing Fiat’s managerial bureaucracy. The CEO has managed to change the managerial tone to a focus on profits and markets. This philosophy of reduced managerial bureaucracy has gone down to even Chrysler.
In regards to Chrysler, Marchionne stated in 2009 that their goals are straightforward as they look forward to breaking even with an operating profit of $5 billion by 2014. The organizational change in the company seems to be having positive impacts of the financial state of the organization (Denison, 2001).
In as far as, it concerns Chrysler; the company has exceeded its set targets having generated $763 million of operating profit in 2010. The initial expectation was to break even at $200 million for the full year.
Chrysler’s profitability is further held up by an increasing average transaction price that increased by 6.4% above the previous year’s average transaction price. These financial reports are a clear indication of the impact of the organizational change in Chrysler (Edmonds, 2003).
On the other hand, the current company plans on increasing the number of staff members on an annual basis. During the Daimler years, Chrysler employment level dropped from 123, 000 to just about 69,000 which was a 45%decline. From records, the company hired 82,280 staff world wide out of which 64,750 employees were within the United States.
In 2009, there was a further decline in the employment level with the company hiring 47,800staff. However, with the change in the organization there has been a remarkable change in the patterns of employment. Since the partnership with Fiat, Chrysler has begun work overhauling its model line up and has employed 5,000 employees, which include 500 engineers.
The company’s management has promised to hire 1000 more employees to work on its new line up. Currently, Fiat enjoys the status of employing over 80,000 staffs in Italy and another 190,000 employees worldwide. This is an indication that the merger of the two outstanding companies has a positive impact both in the financial and human resource aspect (Cumming & Worley, 2009).
Organizational change come challenges that the companies will have to face. Introduction to change management is a process that will take time for the other people to adapt and will require several support-mechanisms to achieve the goals of the change. In this part of the paper, we analyse the underlying problems the organization faced in the wake of organization change.
For a company to declare bankruptcy it implies the management and all other stakeholders have done their best to revive the company to no avail. In this case, to rescue Chrysler from its current crisis will call for rescuers carrying out the task from different aspects. Fiat-Chrysler merger faces several challenges and these are the stepping-stone over the challenges that will render the merger a success.
This change in an organization should be ready to achieve the main challenge Chrysler is facing which is bankruptcy. For Fiat to fall under the success stories in the merger, the management and other stakeholders will have to pull the company out of bankruptcy within the set period. Most companies, which try to make a comeback from bankruptcy, end up going back to bankruptcy or getting out of business for good.
The change in management will face resistance from different stakeholders concerning the steps it will take in getting the company out of bankruptcy. Most notable will be the creditors who may not be patient to the management’s approaches to reviving the company.
By the time Chrysler declared bankruptcy, it had already had a clear outline, which was to help it make a strong coma back from bankruptcy. The organizational change will mean the company following the plans of the new management comprising of Marchionne and the nine-member board of directors (Collins, 2001).
Problem Analysis
Over the years, Chrysler had a clear product line, which has seen it excel in the auto motor industry. A change in the organization will mean a change in the product line. Mainly, the Fiat-Chrysler merger looks at pruning the product line for the company, and this may be a considerable challenge. Change in any company is hard to take and the investor and stakeholders maybe resistant to leaving their ideas of production.
The approach Fiat-Chrysler merger is likely to employ under new management will involve critical analysis of the vehicles the company produces. There will be a need of getting rid of cars that are unpopular, unprofitable or too similar to other models out there. This move is likely to impact negatively on the company’s customers who still have their products and would wish to continue purchasing them from Chrysler.
Product pruning will be necessary to the new management can introduce a line of Fiat cars only popular in their native country-Italy. Another notable challenge with the new management is the selling of Americans on Fiat. The company will have to bring fresh offerings, and this will increase the company’s expenditure.
The new management aims at coming up with new models, which will be helpful in getting customers into the showroom. The new models will have to come at a lower cost than what most customers expect of Chrysler (Cohen, 2005). The main challenge under this step is the reception of the new models by the Americans.
The new management of Marchionne will have to come up with methods that will see to more customers purchasing the new models. Introducing new products to the market can be a challenging issue for any company and putting to mind that the management is new to the market.
It is unpredictable whether the Americans and other relevant stakeholders will embrace Fiat’s line of small and flashy cars, which are fuel-efficient. These are the additional challenges most companies face in the wake of organizational change, and Chrysler has no otherwise but to deal with the challenges (Freyssenet, Shimizu & Volpat, 2003).
Chrysler will also have to work with the new change of leadership starting from the top management. The current CEO of Chrysler, Bob Nardelli, will step down at the end of the company’s bankruptcy. This will mean a substantial change in the management area as the CEO for Fiat takes over. The company will once again have to deal and adapt to the new corporate culture.
The prior case when Chrysler faced change in change, in management, the partnership fell apart because of lack of understanding (Cummings & Worley, 2009). Fiat- Chrysler merger will be introducing a new culture of leadership- Italy, and the company has always been under the American management.
Introducing a new partner in the business is one thing but having one who speaks a different language and is an ocean away, it becomes a complex case. During this bankruptcy period, the company faces another challenge of boosting the morale of its employees. The staff members of Chrysler have been through bankruptcy more than once, and the trend can be heartbreaking for the employees.
The earlier Daimler-Benz merger failed terribly and with it came several cases of extensive buyouts and cutbacks. The employees will need a more promising decision on the effectiveness and success of the Fiat-Chrysler merger.
The new management will have to come up with an extensive plan, which will assure them of the people in charge. This will be a motivating factor to the already sceptical and angry employees of the company (Bracken, 2002).
In addition to the above challenges, Chrysler will also have to work towards maintaining satisfactory labour relations in these times of bankruptcy. The company’s bankruptcy plan calls for the union taking a 55% stake in the new company through an arm that provides retirement benefits to its members.
More so, the new management faces the challenge of helping the company to survive the current recession. Navigating the company through a punishing recession that has relentlessly affected both access to credit and consumer spending will be the new management’s main challenge (Avery, 2010).
The above case clearly outlines hoe change management should be handled in any company undergoing organizational change. Chrysler underwent a significant change in management and so far, he has managed to improve its financial and production status, which is a clear indication of well-managed change management.
The process for managing change bases on varied models and theories, which give, outlines to management in place. Managing change in any organization calls for the inclusion of all stakeholders of the company to achieve the company’s objectives.
For instance, in the above case of Fiat- Chrysler merger the decisions the new management makes will be in line with the interests of the stakeholders- customers, employees, investors, government, and any other party. One process of managing change is not to focus on the project management, but the impact the change will have on other people.
Most organizational changes fail because of the management neglecting the impact of change on the individuals concerned. People react to change differently, and in this case, it is up to the management to highly focus on this aspect (Kogut, 1993).
Tools of change management include change management process, resistance management, readiness assessments, and more so celebrating and recognizing success. The change management process refers to a sequence of steps that a change management team would follow to apply change management to change.
Just like any other company, change management in the Chrysler-Fiat merger involved the following steps- preparing for change, managing change, and reinforcing change. The company declared bankruptcy prior to the merger and took time to make the merger official. This duration was magnanimous enough for the company stakeholders to prepare for the change in management that was to take place in the company.
The creditors and employees had ample time to prepare for the change in management. Any change in management comes with varied changes that the customers, employees, and creditors will have to abide to so as the company can function normally.
For instance, the Fiat-Chrysler merger changed the production strategies that every stakeholder was accustomed to, and they had a reasonable time to adjust (Ortmeier & Meese, 2010).
Application of Change Management Principles
Readiness assessment is a component for change management process. This strategy assesses the company’s readiness to accept change. In the case of Chrysler, the company was ready for any change as the change would be beneficial to the company. Prior to the merger, the company had already declared bankruptcy, and this meant a merger was to save the company from its woes.
At this point, the project leader enlightens the relevant stakeholders of the scope of the change, the impact of the change. In addition, the step assesses the strengths of the change management team together with the sponsors. According to John P Kotter, a Harvard Business school professor, there are eight steps to a successful organizational change management.
The first, crucial step according to this model is the increase of urgency, which involves inspiring people to make real and relevant objectives that will lead to the success of the change. In any change, there has to be a guiding team to oversee the change process and get the vision for the change right.
The best example for this step is the change of the CEO of Chrysler and introduction a nine-member board of directors to oversee the change objectives in the organization (Leading Change: Making Transformation Work, 2010).
Kotter’s model of managing the change process insists on the significance of communication for buy-ins. In this process, the company involves as many people as possible to support the change process. Fiat-Chrysler merger brought several stakeholders together including the US government, creditors, investors, customers, Italian government etc. Empowerment actions are necessary to make the change successful.
The management team will be responsible for removing obstacles and enabling constructive response and great support from leaders. The management team should also create short-term wins that easy to achieve and encouraging the team players not to give up.
The change process comes with several setbacks and obstacles that can easily make a person give up but, according to Kotter’s model, this should not be the case.
Finally, the change team needs to make change stick and clear any loopholes that can make the change to breakdown. “Reinforcing the value of successful change through recruitment, promotion, and new change leaders” will be instrumental in making change stick in any organization (Avery, 2010).
Plan of Action for Managing the Change
Various organizations come up with varied plans to manage change. The plan to manage change should be one that leads to the success of the organizational change. In the event, I was in charge of managing change in the Fiat-Chrysler merger I would come up with an all-inclusive plan to manage change. The action plan will comprise of several items such as the following.
The action plan will outline the areas, which need change in the organization- structure, policies, practices, attitudes, people, decision-making, the rewards people get and many other areas. The action plan will also exhibit the key stakeholders in the change plan and their readiness and capability for change. The action plan will also define the key roles each person will take in the change process (Gottlieb & Conkling, 1995).
Mainly the resource allocation process will be in the action plan in order to ensure equal allocation of resources. Resources in this sense will include money, time, and people in the organization. I believe this action plan will be helpful in solving the challenges most organizations face while undergoing organizational change.
In the event, the change management team employed the above action plan resistance to change by the stakeholders of Chrysler Company will be minimal. This is because the change action plan outlines the process of change and defines each person’s role in achieving the set objectives.
The plan equally involves all the stakeholders hence there will be no chances of people feeling left out in the process of change. In the end, the organization will be comfortable and adapt to the organizational changes the new management will have put in place.
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